Part Two

Stop Selling Products to Cross the Connected Chasm

Back in 2008, Blockbuster CEO Jim Keyes stated, “Neither RedBox nor Netflix are even on the radar screen in terms of competition.” Sure it sounds ridiculous now, but be honest – would you have imagined back in 2002 that your neighborhood video store would soon disappear?

Luckily, attitudes towards disruption have changed immensely since Keyes uttered these famous last words – according to KPMG’s annual CEO report, 95% of CEOs see disruption as an opportunity. Furthermore, 71% of CEOs are ready to lead their organization through radical transformation in order to remain competitive. If you haven’t already, join them.

Stop selling products

Selling the same product in the same old way is no longer enough to keep a company afloat. Nor is selling a better product enough to increase market share. Improving the in-store experience, or the video packaging, would not have stopped the mass exodus from stores to streaming services. And it certainly wouldn’t woo Netflix’s 118 million subscribers back into Blockbuster stores from the comfort of their couches.

In order to succeed in this rapidly changing, connected world, your company needs a vision for the future that takes advantage of the full promise of the Fourth Industrial Revolution. Innovation teams can no longer rally around the familiar cry of “How can I sell more ___?” Companies must instead create a portfolio of strategic initiatives that will drive the company in the right direction. In other words, you must shift your focus from an outdated product model to a service model to survive.

Welcome to the Fourth Industrial Revolution. After steam, electricity, and wired computers comes the cyber-physical revolution, which blurs the lines between the physical, digital, and biological spheres via emerging technology.

Drive profitable outcomes with service models

Often called ‘outcome-based’ models, service models shift a company’s focus from the product they create to what their customer is really looking for: A solution to their problem. An outcome.

To put this into perspective, look at the most common revenue models associated with this shift in thinking:

1. Consumption model: In this model, consumers are charged for actual usage instead of a flat monthly fee. A simple example would be a soda machine that charges consumers only for the number of ounces they drink. Usage-based insurance, also known as ‘pay as you drive’ insurance, is far more complex. This type of car insurance company charges consumers based on a multitude of factors – among them, driver behavior, distance driven, and the type of vehicle – creating a dynamic premium based on real user information.

2. Asset sharing: This model allows companies or consumers to share the cost of expensive assets, creating additional value across existing resources. Famous examples include Zipcar and AirBnB, but this model’s potential B2B applications should not be overlooked – manufacturing startup DOZR, for instance, enables contractors to rent industrial equipment from other construction companies that are not currently using it.

The ultimate goal: a connected ecosystem

How does an ecosystem differ from a connected product? Instead of providing a single source of data, an ecosystem of connected products and services drives significant value at every stage of the consumer journey and your internal value chains via multiple data streams. Take Caterpillar as an example of one such connected ecosystem done right:

Source: CAT® Connect Technology and Services

With their Cat Connect services, this iconic brand has adopted multiple service models, transforming their manufacturing equipment into a fleet of connected products. Caterpillar’s customers use this smart equipment to monitor jobsite efficiency, equipment maintenance needs, fuel consumption, and more. This allows them to reduce costs while improving safety and production on their jobsites.

These new services create a reputation for innovation for Caterpillar, driving loyalty for the brand and attracting new customers. Additionally, the data Caterpillar collects from all this smart manufacturing equipment drives optimization in their product lines, as well as within their sales pipelines.

Key Fact

The total economic impact of the connected world has been estimated to be as much as $11 trillion by the year 2025. For reference, the gross domestic product of the United States reached $19.39 trillion in 2017.

To begin crossing the connected chasm, start with one step in the right direction

Service models don’t change business goals like increased business opportunities, more efficient processes, greater customer loyalty, enhanced asset utilization, and increased market share. Service models simply change how you achieve them. It’s imperative that you keep one eye on the potential for emerging technology to create change, but the other eye on those factors that will always remain constant in your industry.

Follow Caterpillar’s example: Map your business goals to service-model solutions, creating a portfolio of strategic initiatives that solve real needs and bring you closer to a connected ecosystem. Then, create momentum behind them to ensure success, and to stop organizational forces from deprioritizing these new ideas in favor of maintenance or older ways of thinking.

Strong leadership is immensely important for change management. Without clear communication on progress and vision, your IoT initiatives face far greater risk of failure –internal excitement atrophies, and teams start waiting for this ‘fad’ to blow over so they can keep prioritizing incremental optimization. Create a manageable, measurable first step as your company’s first domino on the road to true transformation to get your team on board, without losing sight of the real prize: a well-oiled connected ecosystem.

So what happens if you decide to wait on innovation? The head-in-the-sand approach may seem reasonable on the surface – there’s risk in revolution, after all. But the greater risk is in inaction, and striving to squeeze more profit out of an outdated business model.

According to IDC FutureScape’s Worldwide IoT 2018 Predictions, almost 50% of new IoT enterprise applications will leverage outcome-focused functionality based on deep data insights. If you want to succeed in tomorrow’s markets, you must shift your thinking today and embrace change as the core of your new innovation strategy.